Gautam Baid of Summit Global Investments presented his in-depth investment thesis on Future Enterprises (India NSE: FEL, BOM: 523574) at Best Ideas 2018.
Future Enterprises develops, owns and leases the retail infrastructure for the Future Group of companies, India’s leading retailing chain, led by Kishore Biyani, an astute dealmaker and the “father” of organized retail in India. As part of a merger between Bharti Retail and Future Retail in May 2016, the latter was spun out from Future Enterprises as an asset-light front-end retailing company and Future Enterprises became a debt-laden holding company with stakes in Future Group’s various subsidiaries and joint ventures outside retail, including general and life insurance, textile manufacturing, and supply chain and logistics, with a stated intention to sell those stakes over time to deleverage the balance sheet. In the next two to three years, the value of these stakes is expected to be more than the recent market cap of Future Enterprises. The shares trade at 7.8x EV/EBITDA based on current-year guidance. With listed comparable peers in India trading at 11-15x and one of them acquired in 2015 at 12x EV/EBITDA, limited scope exists for multiple compression at Future Enterprises with its sustainable contracted rental income. As a result, the aftertax sale proceeds from stake sales over time should flow to the equity side, implying upside of 100+% for Future Enterprises over the next three to four years.
About the instructor:
Gautam Baid, CFA, is Portfolio Manager, Global Equities at Summit Global Investments, an SEC-registered investment advisor based out of Utah, USA. Prior to his current role, he served at the Mumbai, London and Hong Kong offices of Citigroup and Deutsche Bank as Senior Analyst in their healthcare investment banking teams. Gautam is a CFA Charter holder from CFA Institute, an MBA in Finance from Nirma University, Ahmedabad, India and an MS in Finance from ICFAI University, Hyderabad, India. He is a strong believer in the virtues of lifelong learning and is an ardent student of the value investing philosophies of Benjamin Graham, Warren Buffett, Charlie Munger, William O’Neil and Joel Greenblatt.
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